A LEADING bank has been accused of acting in an "irrational" way after it turned down an insolvency deal and will now end up with a large loss.

The refusal of KBC Bank to agree to an insolvency arrangement will see it lose almost €200,000 as the borrower is set to go bankrupt, it has been alleged.

KBC Bank vetoed the personal insolvency arrangement (PIA) even though the borrower was co-operating with it, the Irish Independent has learned.

Insolvency practitioner Mitchell O'Brien, of Dungarvan, had proposed the deal to the bank.

The borrower, spoken to by this newspaper, said he was at a loss to understand why the PIA proposal was rejected by the Belgian-owned bank.

A former electrician, he had borrowed €300,000 to buy his house in 2005 during the boom. He has since lost his job and returned to full-time education.

But he was anxious to marry the mother of his young son and retain the house. His fiancee was prepared to contribute to the mortgage.

Surrender

Mr O'Brien calculated that a revised mortgage of €196,000 could be paid by the couple. He proposed a PIA to KBC Bank on this basis, with €10,000 of credit union loans being written off as part of the deal.

When negotiations did not go well, the borrower even made an offer to give up the house in a voluntary surrender.

But the bank vetoed the PIA and the man is now expected to file for bankruptcy and the case is expected to go to court this week.

The bank is now to get the house, but will be forced to write off most of the mortgage money that it had advanced.

Mr O'Brien said the bank could have received €196,000 if it accepted the insolvency deal.

The bank will now have the costs associated with repossessing the house after the bankruptcy, the insolvency expert said.

"The bank is going to crystallise an unnecessary loss of €196,500 on the mortgage.

"There is total irrationality in the bank's thought process. The man is not an unco-operative borrower," the personal insolvency practitioner said.

"If you could pick a model customer for a PIA, it is this person. His girlfriend was even prepared to contribute to the mortgage."

A spokesman for the bank said: "KBC Bank Ireland is not in a position to comment on an individual customer's case."